The Definitive Guide to Accounts Receivable Financing

There was a 40% increase in how many small-and-medium-sized enterprises took advantage of business financing in 2018. It’s an incredible resource to improve cash flow, which can be dedicated toward marketing, expenses, inventory, new equipment, and paying employees.

However, small businesses agree that cash flow is one of their top five challenges. That’s why opting for accounts receivable (A/R) financing is a popular option to keep a healthy cash flow.

There are several benefits that accounts receivable financing offers, which we’ll be covering ahead. Furthermore, you’ll also learn how our services at Resolve compare to A/R financing, and how the two compare.

What is A/R financing?

Before you receive financing, it’s crucial that you understand exactly what it is and how it will affect your business. In layman’s terms, A/R financing is a service that helps business owners improve their cash flow.

As a result, they are able to grow faster and not experience as many interruptions. Lenders provide an advance against unpaid invoices, ensuring a business has sufficient funds to operate and grow its business while waiting to be paid by customers.

Customers will receive a line of credit that is based on the unpaid invoices currently owed in 30, 60, and 90-day periods, and the process is typically simple. You would create an account with an A/R company, and go through an application process to determine your options.

Several factors are analyzed to determine if you qualify for this type of financing, including:

  1. Your credit history

  2. The accounting history of your company

  3. Business revenue

  4. Whether your invoices are late or not

Compared to factoring, accounts receivable financing tends to be more flexible, too. You choose the exact invoices for which you wish to receive an advance, and it doesn’t require large monthly minimums.

Who are the best candidates for A/R financing?

This type of financing is ideal for small-to-medium-sized businesses that are interested in enhancing cash flow. They are then capable of allocating more capital toward marketing, expenses, employees, and other overhead.

It is also suitable for those that do not wish to apply for a small business line of credit, or have been previously denied. Entrepreneurs strapped for time as well will find A/R financing beneficial, as the process is quicker and easier to repeat if needed again in the future.

What are the costs of A/R financing?

There are no hidden fees when taking this route to enhance cash flow, as it has uncomplicated pricing. Other financing options commonly include various processing fees, but you’ll find A/R to be much simpler and easier on the pocket.

The Resolve difference Resolve charges minimal fees and advances the entire amount of the invoice, so you can continue growing your business smoothly.

Traditional A/R lenders only advance a small amount of the funds, meaning you’ll be left hanging until repayment of the buyer.

You will pay a fee on every invoice for which you need financing. Whether that is when the customer fulfills the invoice or on a specified schedule, like every week, this fee is normally called the “discount rate.” It ranges from .02-.10% on average.

Now that you understand the basics of what A/R financing is, follow along as we explore the benefits more deeply.

Benefits of A/R financing

You will get paid faster

When you invoice a client which doesn’t pay it for upwards of several months, a long window is created where you cannot use that money. Given that one in ten invoices is also paid late, and that it can take 15 days to chase the customer, you don’t want delayed payment any more than needed. Financing will help supplement you with short-term cash flow to pay for rent, employees, and other expenses.

If you choose to work with traditional A/R companies, they will inspect your financials to ensure that you are a suitable candidate for their services. Additionally, privacy is a large value for these service providers, so your information will only be used to determine how cash flow can be improved.

It helps grow your business faster

Without cash flow, a business can’t expand and take on new customers. This means that you’re limiting your long-term growth by waiting for invoices, and accounts receivable financing gets you past that hurdle.

The Resolve difference Unlike standard financing services, Resolve not only helps you keep more cash in your pocket, but also aids in increasing sales as a marketing tool.

By being able to extend credit to your buyers, you effectively increase order size, which improves overall revenue. Similarly, this encourages repeat purchases and longer relationships with your customers.

Our users can also pitch previous clients to extend credit, meaning that you can recycle them back into your funnel.

Less stress and saves time

With the difficult and time-consuming process of receiving payment resolved, business owners will enjoy peace of mind and more time to dedicate to other parts of their business.

While you’re still ultimately on the hook to collect from customers, you could skip this process and outsource it to us at Resolve as a part of our non-recourse financing.

We will completely handle all of the billing and collections process on your behalf. You will drastically reduce risk, which you won’t receive when working with a regular lender.

You will pay a fee on every invoice for which you need financing. Whether that is when the customer fulfills the invoice or on a specified schedule like every week, this fee is normally called the “discount rate.” It ranges from .02-.10% on average.

The Resolve difference Resolve boasts advanced underwriting technology that quickly determines the creditworthiness of your customers.

This means that you no longer have to act like the bank anymore, nor spend heaps of time assessing credit quality. All of this is done on your behalf, leaving you more time to grow your company.

Learn more about how our process can help improve your cash flow here.

More cash upfront

Yes, A/R financing will get you more cash up front. However, many companies will only pay out 80-90% of the receivables. As a result, you are actually losing a fair amount of money in the long term. If you already have lower margins, this can seriously cut into profits.

The Resolve difference At Resolve, we pride ourselves in paying out more than that. We understand that cash flow is your issue, so we’re not going to dig into it any deeper. In addition to this, we work with all types of customers, from sole proprietors to Fortune 500 companies, across the credit spectrum, while traditional lenders are more conservative.

Our service also directly integrates into e-commerce websites and checkout pages. We make B2B selling as streamlined and easy as direct-to-consumer. Contact us to determine if your platform is eligible.

No personal collateral

When you take out a traditional loan, collateral is often required to soften the risk of the lender. This is often personal collateral, including your house, car, or bank accounts. In the worst case scenario, lenders could come after your personal belongings that were put up as collateral.

Sure, you get your cash. But, you also have to take on extra risk. You can’t say that about A/R financing. No personal collateral is required; only a small percentage of the invoice which is being financed is taken.

Final thoughts

Financing your accounts receivable is a great option for keeping short-term cash flow at a healthy level. Instead of waiting 30, 60, or 90 days to receive an invoice, you can get an advance for a similar amount. This money can be used to pay employees, cover expenses, or for marketing.

Invoicing can also be a stressful and time consuming process, which A/R financing easily fixes. You get your cash up front, giving you peace of mind to continue operating your company. No personal collateral needs to be put up, either.

Nonetheless, it still has several drawbacks. First, merchants will still need to be responsible for billing, collections, and underwriting -- all of which are time consuming and difficult. The advance is often not the full amount of the invoice being financed, either.

Traditional lenders also don’t help with sales or marketing, which Resolve does. Our extended credit helps merchants increase average order size, repeat orders, and get old clients back into their funnel.

So, what are you waiting for? Contact us today to learn about how our services can help you extend risk-free credit to improve sales.

A/R FINANCINGRESOLVEFaster money✓Better cashflow✓Keep more of your money✓Save time✓

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